Why You Don’t Need to Worry About Losing Your Roth IRA

In this segment of “Financial Planning Q&A” on Motley Fool Live, recorded on Dec. 1, Fool contributor Dan Caplinger discusses why he thinks Congress won’t make big changes to the Roth IRA conversion process.

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Dan Caplinger: All right, question from Tom on gross yield. “I’m very worried about losing the Roth conversion, a central part of my retirement plan, reducing my required minimum distributions, stay within the limits for not paying surcharges on Medicare premiums. What are the chances?

Tom, Bro is just talking about this. There’s still a lot of uncertainty about just how far things are going to go in terms of what is going to be changed about conversions, what’s not going to be changed about conversions.

Most of what I’ve seen makes it seem that the ability to convert entirely is unlikely entirely to go away. A lot of this is just my personal view. There’s too much at stake in terms of, the whole purpose of the Roth IRA and allowing people to convert was to give some flexibility in terms of retirement planning strategies.

It’s a big tax revenue raiser for the federal government. Anytime that you are converting traditional IRA to Roth IRA or 401(k) to a Roth IRA, you’re recognizing taxable income that helps to generate income revenue for the federal government that it desperately needs right now.

I don’t think that Congress is going to be in any hurry to pass a broad prohibition of Roth conversions entirely that will end up costing it tax revenue by doing so. Most of what I’ve seen, reconciliation requires provisions that cost tax revenue to have offsets, and it’s hard enough to find those offsets elsewhere.

That’s why I’m pretty comfortable that you’re going to still be able to convert. You may not be able to do this conversion of after-tax money anymore, the backdoor Roth might go away. I’m not terribly worried about that because for most people, you’re talking about, OK, so I don’t get $6 thousand a year into a Roth IRA, that’s not the end of the world for most people.

But as you point out, losing a Roth conversion entirely, that would be a much bigger deal. I think they will get a lot more push-back and to do it generally for everyone, I just don’t see it happening. Maybe you do some sort of prohibition for folks above a certain income limit, I just don’t know.

I’ll be interested to see how that develops. But frankly, progress on anything in Washington has been so slow that it wouldn’t surprise me if we don’t really see much of anything get passed.

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